KUCHING: Steel manufacturer CSC Steel Holdings Bhd (CSC) is heading for a more promising first half for financial year 2011 (1HFY11) as steel prices continue to escalate.
OSK Research Sdn Bhd (OSK Research) opined that with this trend of hiking steel prices, CSC might enjoy a time lag advantage from cheaper inventory stocked up previously in its operations.
Besides that, the end of the lunar festive season also suggested that construction and manufacturing activities would start to pick up, gearing up the second quarter as the strongest period for steel demand.
The research firm stated that the group’s fourth quarter for financial year 2010 (4QFY10) returned to the black with a net profit of RM8.6 million after a marginal loss of RM1.6 million in the preceding quarter.
A separate research house, RHB Research Institute Sdn Bhd (RHB Research) attributed the achievement of the positive performance to the absence of a RM10 million inventory write down that was incurred in the previous quarter.
RHB Research also viewed that the rising steel prices would act as a ‘cost push’ in nature and more a case of steel producers passing down raw material cost increases, rather than expansion in margins.
Having said that, steel producers would still be expected to post decent results in 1HFY11 due to the usage of relatively cheaper raw material inventory against higher average selling prices, said RHB Research.
Meanwhile, AmResearch Sdn Bhd (AmResearch) pointed out that CSC announced a much higher dividend payout of 70 per cent, translating to 15 sen per share which would register an impressive 7.4 per cent yield.
AmResearch commented that with the global 4QFY10 hot roll coil (HRC) spot prices trading flat, increased 4Q inventories might indicate stocking up of HRC feedstock by the company.
CSC, under that circumstance, believed that HRC’s February selling
prices would go higher and anticipated this to continue throughout 1HFY11 forecasts.
With orders coming in anticipation of a continued upward trend in the flat steel market, the group’s margins would be spurred to greater heights.
As a conclusion, OSK Research pegged CSC at a target price of RM1.97 per share, RHB Research at RM2.01 per share and AmResearch at RM2.00 per share.